Tag: NetFlix

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Regulation - What is it Good For?

Net Neutrality Again?

There is an interesting recent discussion in Europe about net neutrality that has relevance to the U.S. broadband market. The European Commission that oversees telecom and broadband has started taking comments on a proposal to force content generators like Netflix to pay fees to ISPs for using the Internet. I’ve seen this same idea circulating here from time to time, and in fact, this was one of the issues that convinced the FCC to first implement net neutrality.

Netflix generates less than 10% of the broadband traffic in Europe and European ISPs think that Netflix should pay a substantial fee for using the Internet network. Europe looks a lot like the U.S., and Netflix, Meta, Amazon, Google, Apple, and Microsoft generate most of the traffic there. Online video accounts for 65 percent of all traffic on the web. Netflix argues that the amount of video on the web will continue to climb and that any fees charged to video providers will eventually be applied to a wider range of content providers.

It’s an interesting topic that can be considered from different perspectives. First, companies like Netflix already spend a lot of money to use the network today. Just like in the U.S., Netflix has built or purchased transport to allow local peering. Netflix claims to be providing 18,000 local servers around the world in 175 countries to move its video signals closer to ISP networks. This relieves a lot of volume on the web core and also improves the quality of Netflix content. The same is true for other content providers, and in the U.S., there are a lot of local peering points that have been created by Google, Meta, and others.

Netflix makes the point that the big ISPs in Europe are already profitable and the ISPs would simply pocket any new revenue stream. They are highly skeptical that any benefit to ISPs from charging Netflix would be passed on to Netflix customers through lower broadband prices.

When net neutrality was discussed in the U.S., there was a good argument made by content providers that subscribers are already paying for end-to-end use of the Internet in the monthly fees paid to ISPs. Charging the content providers for using the Internet would amount to billing twice for the same traffic. Since the original net neutrality discussion here, U.S. broadband prices charged by cable companies have increased significantly, making it even more true that customers are supporting the Internet.

Another way to think about the issue is that video is the service that drives a lot of households to buy broadband. Without Netflix and the other online video content providers, there would not be nearly as many broadband users, and ISPs would not have such a large market share. There is a truism in the industry that says you shouldn’t build a broadband network solely to provide entertainment to customers, but there is no denying that there are a lot of homes that wouldn’t buy broadband if it wasn’t for video and social media. Not everybody works from home or has students that need broadband for schoolwork.

There are several reasons why I am highlighting this European issue. Topics that become issues in Europe invariably are raised as issues here, and vice versa. If American ISPs see that European ISPs have been able to extract payments from Netflix, our ISPs will immediately start making the same demands here.

The other interesting aspect of this particular argument is that it’s something that we already solved once in the past when the FCC passed net neutrality rules. But the Ajit Pai FCC tossed out those rules, so it was inevitable that net neutrality topics would eventually come to life here again.

The net neutrality issue is one of the most interesting topics from a regulatory perspective. Even after Ajit Pai tossed out the net neutrality rules, American ISPs didn’t change their behavior. There are two possible reasons for this. I think ISPs have tried to keep a cap on behavior that would induce regulators to try to put net neutrality back in place again. It seems that perhaps the mere threat of reintroducing net neutrality has kept ISPs in check. However, I find it likely that ISPS are now feeling braver after having squashed the proposed fifth FCC Commissioner.

The other reason is that California put its own version of net neutrality rules in place. This has slowly made its way through the courts and is now in effect. ISPs might not be willing to take on California, because to do so might invite many other states to pass different version of the same rules. As much as ISPs hate the idea of federal regulations, they don’t like, the= biggest fear is a hodgepodge of different regulations in states.

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The Industry

Expect Big Changes from Streaming Video

One of the biggest uses of bandwidth continues to be streaming video from the many online vendors like Netflix, Disney, Hulu, and many others. Final 2022 earnings reports show that this is an industry segment in crisis.

  • Warner Brothers, which owns HBO and Discovery reported losses for online video of as much as $2.3 billion in 2022.
  • Paramount reported losses of $1.8 billion for its online platform.
  • Comcast and its NBC Universal subsidiary that operates Peacock reported losses in 2022 of $2.5 billion.
  • Disney reported a loss of $4.1 billion for its Disney Plus platform, which is hard to fathom with a platform that has 162 million subscribers.

Altogether, the losses for just these four video platforms were almost $11 billion in 2022. There are other big platforms like Apple, Google (YouTube), and Amazon that don’t specifically report on the performance of the video streaming segment. There is one exception to the trend towards losses as Netflix, with 230 million global customers, reported profits of over $6.5 billion in 2022.

The companies with the losses have already reported taking measures to trim the losses. That involves some staff cuts, but mostly it’s going to mean cutting back on the budget for developing new content.

This raises some interesting questions about how the performance of the video streaming industry segment will affect broadband. There has been a significant proliferation of video platforms. Ten years ago, you could count the video platforms on one hand. The earliest platforms like Netflix and Amazon spent almost all of their content budget buying existing TV shows and movies.

But in 2013, Netflix broke the mold with the introduction of House of Cards, followed by a ton of original content. Amazon followed suit in 2015 with the introduction of The Man in the High Castle and Mr. Robot, and now with a wide array of original programming. It now seems that every platform has original content, which seems to be the primary strategy for attracting new subscribers.

It’s hard to think that the industry can sustain these kinds of losses for a long time. Netflix purposefully lost money as it was building its platform, and the company knew it wouldn’t be profitable until it eventually got a lot of subscribers. But with the proliferation of platforms, the idea of any platform suffering losses to get to the top seems like a difficult model to repeat.

One of the ways for the industry to become profitable is to raise rates, but with so much competition, that doesn’t look like an easy solution. Anyone who has tracked subscribers at platforms like Hulu or SlingTV can see how customer counts shrink and grow quarter to quarter. Very few of these platforms have developed a stable, loyal customer base, and the online platforms have made it easy for subscribers to come and go at will – their big differentiator from traditional cable.

The chances are that poor performance, or even the disappearance of a few platforms won’t make much of a difference in the industry overall. If a few of these platforms fail, the subscribers will watch video elsewhere. Probably the only thing that would cause cord-cutting to slow might be if the online platforms raise rates to the point where people decide to keep traditional cable.

Probably the best news for online platforms is that traditional cable companies keep raising rates, largely in response to the ever-climbing cost of traditional TV programming. The programmers seem determined to raise rates significantly every year, even in the face of losing customers. For many traditional programmers, the loss of American subscribers is being offset by a growing audience around the world.

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The Industry

Benefits of Peering

Peering is the process of exchanging Internet traffic directly between networks instead of passing calls through the open Internet. That probably requires a little explanation and an example. Let’s say that you’re at home and you request to look at a website for a bookstore. You do this by typing in a web URL (the name of the website). Regardless of where that bookstore is located – in your town or across the country – your request is routed by your ISP to the open Internet. Every ISP has connections to reach the web that we generically call backhaul in the industry. In plain English, that means a fiber route from the ISP to the Internet.

Some ISPs buy connections directly at the major Internet hubs in places like Kansas City, Washington DC, Atlanta, etc. Many ISPs instead send traffic to a closer point of presence, and the request gets passed on by somebody else to the primary Internet hubs. The major Internet hubs then route the request to the region of the country where the website for the bookstore is hosted. The closest hub to the final destination will hand the request to the ISP that hosts the website. Once your request reaches the website of the bookstore, the process is then duplicated in the reverse direction so that the signal is sent back to you to interact with the website.

Peering is a process that bypasses this normal routing. If your ISP has a peering arrangement with the ISP that hosts the bookstore website, your request would be handed from your ISP directly to that ISP without the intermediate steps of passing through Internet hubs.

There are two major benefits of the peering arrangement. First, it’s faster. There is extra time required to pass through intermediate hubs. In a peering arrangement, the request would go to the ISP that hosts the bookstore website. The bigger advantage is that peering saves money for both ISPs. ISPs must pay to transport traffic to and from the Internet and also pay for the usage at the major Internet hub. When this particular request is sent through a peering arrangement, your ISP avoids paying to use the major Internet hubs.

Peering makes the most sense and saves the most money when it can bypass Internet hubs with large amounts of traffic, so the most common peering arrangements connect with companies that generate a lot of web traffic. The three largest users of bandwidth for residential ISPs are Google, Netflix, and Facebook. All three of those companies are willing to enter into a peering arrangement with an ISP if it saves money. These companies also like peering because it improves performance for users.

Large ISPs probably all peer directly with these large web companies and others. It’s unusual for big web companies to peer directly with a small ISP. However, there are a number of places around the country where small ISPs pool their traffic to peer with the large web companies. These regional peering hubs might be owned by one of the ISPs or perhaps by a third-party.

Peering can save a lot of money. I talked to several of my clients who take advantage of peering, and they claim that peering saves them from sending from 30% to 65% of their traffic through the open Internet – depending on the specific nature of the peering arrangement.

Peering with the large web companies is not free, and an ISP must provide the transport to meet the peering partner. But this still can save a lot of money compared to paying for broadband usage at the major Internet hubs.

There is another kind of peering that is talked about less, but is widely used, which is private peering. Another name for this is creating a private network that bypasses the Internet. One of the biggest examples of this is the Internet2 network, where universities pass large volumes of usage directly between each other without going through the Internet. The federal government has a huge private network for government and military traffic. Many companies pay a for private network between different branches of the company. It’s common for schools in a region to be networked together in a private network.

If an ISP isn’t peering today, it’s worth asking around to see if any peering opportunities are available to you. If you are in a region where none of the small ISPs are peering, it might make sense to work together to create a peering arrangement for the region. All that’s generally needed to justify a peering point is to aggregate enough traffic volume to make it worthwhile to the big web services.

Categories
The Industry

A Comcast Product for Cord-cutters

It’s been interesting to watch how the big cable companies have been trying to battle cord-cutting. Comcast has had a product for a while that is aimed directly at cord-cutters.  It’s labeled as Flex and is a video streaming service that is only available to Comcast broadband customers who are not buying a Comcast TV product.

Comcast hoped that Flex would be a direct competitor to Roku, Amazon Firestick, and Google Chrome. The Flex product clearly wants to keep customers who cut the cord inside the Comcast umbrella.

The product delivers 10,000 programs including Comcast content and content from other free online services like Pluto, Xumo, and Tubi. Content comes with commercials. For now, Comcast is also throwing in Comcast’s paid service Peacock for free. The Flex platform also gives customers an easy portal to watch Netflix, Amazon Prime, HBO, and Hulu.

Flex is certainly price right and currently is free for Xfinity broadband customers. When first introduced, Comcast was charging $4.95. Flex still requires the Comcast settop box and remote. I’m guessing the price came down when Comcast found few buyers willing to rent a box to get free content.

There is a big difference between Flex and competitors like Firestick or Roku in that customers can only use the apps on the platform that Comcast has installed. No additional apps for video or music services can be added to the app. This is probably the biggest disadvantage of Flex in that people are using a lot of different video apps online. I have an Amazon Firestick and it will let me add any online video app regardless of whether the app provider has a deal with Amazon.

When Comcast first introduced the Flex product, I thought the company wanted to become another superbundler like Amazon. Amazon allows customers to buy a subscription to a huge array of different online apps, and I assume Amazon gets a slice of revenue for delivering customers to partner video platforms. There are many video services for which Amazon has become the primary marketing channel. Amazon even suggests content that requires a subscription to the partner apps. The superbundler concept is likely profitable. Amazon has to be doing well taking a small slice of the revenue stream from nearly one hundred other platforms.

Amazon’s made it clear a few years ago that it wanted to become the one-stop shop for online video content, and Amazon has bundled together far more content than anybody else. But in the last year, we’ve seen the rise of proprietary platforms from CBS, Apple, Disney, and others including Comcast’s Peacock that won’t cross-market with Amazon and others. It’s not looking like any one bundler is going to be able to pull together a giant percentage of online video content.

It’s less clear how Comcast intends to benefit from Flex. I assume Comcast gets a share of ad revenues generated on platforms like Pluto. But there doesn’t seem to any other major benefit to the company for operating the Flex program, particularly since they are providing the settop box to Flex customers for free. The plan probably made financial sense at a monthly $4.95 rate, but it’s hard to see the long-term benefit to Comcast of offering a free service. Perhaps the one big benefit to Comcast is that the settop box used for Flex can also be used to control smart home and other Comcast products. Perhaps the company is using Flex to draw in customers for these other products.

Comcast has one big advantage over anybody else in the industry in that every Flex customer is already a Comcast broadband customer. That should mean that Comcast has little incremental cost for delivering the free content offered by Flex. It’s easy to forget that Netflix and all of the other online providers must maintain an expensive network to enable them to disseminate video content.

The Flex product is somewhat symbolic of the attempt for industry players to somehow be relevant in the online video market. The product doesn’t drive direct revenue for Comcast even though the company must provide a settop box. The platform is proprietary, which seems to be the new norm for video platforms. It’s one more of the many confusing choices faced by cord-cutters.

Categories
Current News

Will Covid-19 Traffic Kill the Internet?

This is the question being asked all across the industry as the volume of data traffic has leaped upward due to students and employees working from their homes. We got our first glimpse of the impact of the crisis when Verizon announced a week into the crisis that they were seeing a 22% increase in data traffic in their network. More recently AT&T announced a 27% increase in network traffic. In perhaps a peek at what might be coming, Italy, which has been in a lockdown for longer than the US has seen a 90% increase in Internet traffic.

The answer to the question differs depending on somebody’s perspective of the network. For example, Evan Swartztrauber, described as an advisor to the FCC, says that the US Internet network is handling the surge in traffic just fine. He says the increased volume is significant, but it’s not at the same level as what is seen during the Superbowl or the finale of Game of Thrones. That’s reassuring news to hear, but he’s talking from the perspective of the big Internet POPs and the long-haul networks that carry Internet traffic from city to city. Even his answer is a bit glib because we’ve just seen more than a year’s growth in traffic in a matter of weeks and there must be places in the Internet backbone that need to be beefed up to meet the increased demand.

The question that matters is if Internet performance is getting worse for the average user, which is a question about the last mile network. I’ve been checking in on clients to understand the impact. So far, everybody with a fiber-to-the-home network says they are weathering the increased volumes, although several clients are looking into increasing bandwidth in a few parts of the network, such as between the core and field huts. Several clients who operate HFC or DSL networks have told me that their biggest problem is with upload speeds. People working from home as well as students are using a lot more upload bandwidth as they communicate with office and school servers. Gamers also need significant upload bandwidth. These technologies were not designed to handle significant amounts of uploaded bandwidth and customer performance is seriously degrading.

Many clients also say that they are increasing the bandwidth needed to connect to the Internet. Luckily most of them can do this easily, but some rural clients are constrained on the ability to easily add more bandwidth.

What nobody is talking about is the last-mile networks that were already broken. For example, I helped a rural county to get citizens to take speed tests right before the pandemic and we found almost no rural households in that county with broadband speed greater than 5 Mbps – and most are far under that modest number. These customers are served with DSL or fixed wireless broadband, and the local telco and WISPs are obviously bandwidth restricted either due to older technology or due to lack of backbone bandwidth.

Rural networks that are already underperforming might easily collapse under increased bandwidth usage. A 30% increase in usage won’t cut speeds by just 30%, the extra usage is likely to crash the networks. A large portion of rural America already has dreadful broadband. There are terrible ramifications if a network that is only delivering 3 Mbps broadband today gets further stressed. Degraded usage means that a home where a student might have been able to connect to a school server before Covid-19 might now be unable to maintain a connection. Good luck to somebody trying to connect to an office server as they work from home for the first time. And considering that some of these stressed rural networks have upload speeds measured in kilobits per second, good luck to anybody wanting to make a video connection for school or working from home.

Perhaps it’s true that the overall US Internet is not in danger yet of collapsing. Networks are going to see additional stress if the shelter-at-home restrictions carry through April and into May or June. What all of the national headlines are missing is that many rural Internet networks were barely functional before the pandemic. I’ve talked to numerous rural businesses in the last year that don’t even have adequate broadband to sustain a credit card transaction. I hear from homes across the country where the Internet is too slow, or latency too high to sustain connections to a school network to do homework. The current burst in new traffic is going to mean that the Internet performance for many rural users is going to go from barely functional to non-functional.

We might see a little relief if some of the biggest bandwidth users of the web cut back on broadband demand. Google announced that they are going to reduce the quality of video signals from YouTube as a way to cut back on the volume of data hitting networks. There is pressure on Netflix to do the same. AT&T announced that Netflix’s traffic volumes have hit an all-time high. Netflix announced that it is going to reduce traffic volumes by 25% in Europe but hasn’t made the same claim yet for the US. Unfortunately, these fixes are unlikely to make a big difference. the problems in last mile networks is due to having many more Internet users than before the pandemic, and the sheer number of users along with their attempts at using bandwidth-hungry applications is going to kick rural networks in the teeth.

This pandemic has highlighted the horrendous inadequacies of rural broadband. The shortfalls of rural broadband already existed, but with the added traffic volumes, rural broadband is going to significantly worsen. Unfortunately, we didn’t see much funding to help rural broadband as part of the recent stimulus plan. I’m pretty sure politicians with rural constituents are going to hear a lot about this – at least constituents with enough bandwidth to tell their story.

Categories
Regulation - What is it Good For?

ISPs Are Violating the Old Net Neutrality Rules

It’s been just over a year since the FCC repealed net neutrality. The FCC’s case is being appealed and oral arguments are underway in the appeal as I write this blog. One would have to assume that until that appeal is finished that the big ISPs will be on their best behavior. Even so, the press has covered a number of ISP actions during the last year that would have violated net neutrality if the old rules were still in place.

It’s not surprising that the cellular carriers were the first ones to violate the old net neutrality rules. This is the most competitive part of the industry and the cellular carriers are not going to miss any opportunity to gain a marketing edge.

AT&T is openly advertising that cellular customers can stream the company’s DirecTV Now product without it counting against monthly data caps. Meanwhile, all of the competing video services like Sling TV, Paystation Vue, YouTube TV, Netflix or Amazon Prime count against AT&T data caps – and video can quickly kill a monthly data plan download allotment. AT&T’s behavior is almost a pure textbook example of why net neutrality rules were put into place – to stop ISPs from putting competitor’s products at an automatic disadvantage. AT&T is the biggest cellular provider in the country and this creates a huge advantage for DirecTV Now. All of the major cellular carriers are doing something similar in allowing some video to not count against the monthly data cap, but AT&T is the only one pushing their own video product.

In November a large study of 100,000 cellphone users by Northeastern University and the University of Massachusetts showed that Sprint was throttling Skype. This is not something that the carrier announced, but it’s a clear case of pushing web traffic to the ‘Internet slow lane’. We can only speculate why Sprint would do this, but regardless of their motivation this is clearly a violation of net neutrality.

This same study showed numerous incidents where all of the major cellular carriers throttled video services at times. YouTube was the number one target of throttling, followed by Netflix, Amazon Prime, and the NBC Sports app. This throttling wasn’t as widespread as Sprint’s throttling of Skype, but the carriers must have algorithms in their network that throttles specific video traffic when cell sites get busy. In contrast to the big carriers, the smaller independent cellular carrier C.Spire had almost no instances of differentiation among video streams.

Practices that might violate net neutrality were not limited to cellular carriers. For example, Verizon FiOS recently began giving free Netflix for a year to new broadband customers. AT&T also started giving out free HBO to new customers last year. This practice is more subtle than the cellular carrier practice of blocking or throttling content. One of the purposes of net neutrality was for ISPs to not discriminate against web traffic. By giving away free video services the landline broadband companies are promoting specific web services over competitors.

This doesn’t sound harmful, but the discussions in the net neutrality order warned about a future where the biggest ISPs would partner with a handful of big web services like Facebook or Netflix to the detriment of all smaller and start-up web services. A new video service will have a much harder time gaining customers if the biggest ISPs are giving away their competitors for free.

There are probably more bad practices going on that we don’t know about. We wouldn’t have known about the cellular throttling of services without the big study. A lot of discrimination can be done through the network routing practices of the ISPs, which are hard to prove. For example, I’ve been seeing a growing number of complaints from consumers recently who are having trouble with streaming video services. If you recall, net neutrality first gained traction when it became known that the big ISPs like Comcast were blatantly interfering with Netflix streaming. There is nothing today to stop the big ISPs from implementing network practices that degrade certain kinds of traffic. There is also nothing stopping them from demanding payments from web services like Netflix so that their product is delivered cleanly.

Interestingly, most of the big ISPs made a public pledge to not violate the spirit of net neutrality even if the rules were abolished. That seems to be a hollow promise that was to soothe the public that worried about the end if net neutrality. The FCC implemented net neutrality to protect the open Internet. The biggest ISPs have virtual monopolies in most markets and public opinion is rarely going to change an ISP behavior if the ISP decides that the monetary gain is worth the public unhappiness. Broadband customers don’t have a lot of options to change providers and Cable broadband is becoming a near-monopoly in urban areas. There is no way for a consumer to avoid the bad practices of the cellular companies if they all engage in the same bad practices.

There is at least some chance that the courts will overturn the FCC repeal of net neutrality, but that seems unlikely to me. If the ISPs win in court and start blocking traffic and discriminating against web traffic it does seem likely that some future FCC or Congress will reinstitute net neutrality and starts the fight all over again. Regardless of the court’s decision, I think we are a long way from hearing the last about net neutrality.

Categories
The Industry

The Future of Video Streaming

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I predict that we are going to see a huge shake-out in the online video market over the next few years. The field of OTT providers is already crowded. There are providers that offer some version of the programming offered on traditional cable TV like Sling TV, DirecTV Now, Playstation Vue, Hulu Plus, YouTube TV, fuboTV and Layer3 TV. There are also numerous providers with unique content like Netflix, Amazon Prime, CBS All Access, HBO Go, and more than 100 others.

The field is going to get more crowded this year. Disney is planning a Netflix competitor later this year that will include Disney’s vast library of content including unique content from Marvel, Lucasfilm, 21st Century Fox and Pixar.

AT&T also plans to offer a unique-content platform that includes the vast library of content it acquired through the merger with Time-Warner along with the content from HBO.

Apple has finally been creating unique content that it will start showing some time this year. Amazon has stepped up the creation of unique content. Comcast is planning a launch with the unique content it owns through NBC Universal and Illumination Studios.

But the biggest news is not that there will be more competitors – it’s that each of the creators of unique content is intending to only offer their content on their own platform. This is going to transform the current online landscape.

The big loser might be Netflix. While the company creates more unique content than anybody else in the industry they have benefited tremendously from outside content. I happen to watch a lot of the Marvel content and my wife sometimes refers to Netflix as the Marvel network – but that content will soon disappear from Netflix. Disney owns the Star Wars franchise. NBC Universal (Comcast) recently purchased the rights to Harry Potter. CBS owns the Star Trek franchise. AT&T owns the Game of Thrones. Amazon bought the rights to develop more Middle Earth (Lord of the Rings) content. Is Netflix going to be as attractive if they are unable to carry attractive external content in addition to their own unique content?

Each of the major content owners is aiming to capitalize on their most valuable content. For example, the industry buzz is that there are numerous new Star Trek efforts underway and that CBS All Access will become all Star Trek, all of the time. Each of these content owners is making similar plans to best monetize their content.

This looks it is going to turn into a content arms race. That means more content than ever for the viewing public. But it also means that a household that wants to watch a range of the most popular content is going to need numerous monthly subscriptions. I think 2019 is going to become the year when the monthly cost of online content starts climbing to rival the cost of traditional cable.

My family is probably fairly typical for cord cutters. We watch local channels, traditional cable networks and sports through Playstation Vue. We have subscriptions to Netflix, Amazon Prime and Hulu. During the year we add and subtract networks like ESPN Plus, CBS All Access, HBO NOW and several others. And we also buy individual TV shows and movies that aren’t included in these various platforms.

I’m not unhappy with our array of content. Each of our three family members gets to watch the content they want. We’re each free to use the devices we like and watch at times that are convenient.

The number one reason cited for cord cutting is to save money. I’m pretty certain that as a family that we already aren’t saving anything compared to what content cost us before we went online. However, saving money was not our primary reason for going online. I look forward and I suspect that we’ll probably add some of the new content this year such as Disney, so our costs are likely to keep climbing.

A few years ago there was a lot of speculation about where the industry is headed. A lot of people thought that the Amazon super-aggregator model was the future, and Amazon is doing well by reselling dozens of unique content platforms under its name brand. However, it looks like the industry is now headed in the opposite direction where each big corporate owner of unique content is going to want to extract the maximum value by selling directly to the public.

I have to wonder what this all means for the public. Will the high cost of buying numerous online packages dissuade many from cutting the cord? It’s also confusing trying to find what you want to watch with so many different sources of content that are in separate silos. It’s going to be interesting to see these industry giants battling each other for eyeballs.

Categories
What Customers Want

Why Households Keep Cable TV

The results of a new survey were recently released by Telaria and Adobe Advertising Cloud that looked in detail at both cord cutters and those who still use traditional cable TV packages. The survey asked questions to groups of cord-cutters, those with traditional TV and also consumers who only watch video on demand and don’t pay for a service. A summary of the survey can be found at this link.

The survey asked why households keep traditional cable TV and got the following responses:

  • 42% said the primary reason for keeping traditional cable TV is to watch live programming such as sports or local news.
  • 55% said that the options for cord-cutting are confusing.
  • 34% said they liked having a lot of channels available.
  • 21% said they didn’t know where to look for alternative options to traditional cable TV.
  • 55% with traditional cable TV are still satisfied with the value they get for the price they pay.
  • 48% said they have considered cancelling traditional cable TV.
  • 30% said they would cut the cord if they were sure they could watch all of their favorite content

Cord-cutters were asked why they had left traditional TV:

  • 73% said it was due to the high cost of cable TV. 74% of cord-cutters say they are now happy with what they are paying for content.
  • 30% described themselves as low users of watching content and left because they didn’t use traditional TV very much.
  • 36% said they were still able to get the content they want.

There were some other interesting responses in the survey:

  • 16% of respondents say they have used somebody else’s password to watch streaming content.
  • 27% of homes now use a digital antenna to watch over-the-air TV, with sports being the primary reason for using the antenna.

These results are further validated by a survey released earlier this year by Deloitte who surveyed 2,088 households asking why they are keeping traditional cable TV:

  • The primary reason for keeping TV, cited by 71% of households is the ability to watch live broadcasts – be that sports, local news or events like the Emmys or Oscars.
  • Another primary reason is that households perceive that they are saving money due to a bundle. 56% of respondents said the bundle made them feel like they are getting a good deal.
  • The third reason cited for keeping traditional cable is that households said they’ve had the service for a long time and don’t want to change.
  • However, Deloitte found concern about price with 70% of respondents said they are paying too much for their cable subscriptions.

As somebody who cut the cord a number of years ago I echo some of the concerns voiced in these surveys. It can be confusing understanding the differences between the online programming options. I applaud anybody who can decipher the differences between packages offered by Sling TV, DirecTV Now and Playstation Vue. I’ve not yet found an online service that is easy to surf if you don’t have specific programming in mind. The proliferation of platforms with unique programming such as CBS All Access, Disney and others will likely make it even harder to find or afford all of the content you might want to watch. We are definitely not yet to a point where cord-cutting is as easy as keeping the traditional cable package.

Categories
What Customers Want

Is Cord Cutting Accelerating?

The research firm eMarketer is predicting that cord cutting is accelerating this year at a pace faster than predicted by the industry. They’ve done surveys and studies and conclude that 187 million people will watch Pay TV this year (satellite or cable TV), a drop of 3.8% in viewership.

The drop in 2017 was 3.4%, but the big cable companies like Comcast and Charter hoped they could slow cord cutting this year by offering Netflix and other alternative programmers on their platforms. Perhaps that is working to a degree since cable companies are losing customers at a slower pace than satellite cable or the big telcos delivering cable on DSL, like AT&T.

eMarketer looks at the statistics in a different way than most others and predicts the people who will watch the various services – which is different than counting households. I suppose that some members of a household could stop watching traditional Pay TV while the home continues to pay for a subscription. They are predicting that the total number of people who will stop watching Pay TV will rise to 33 million by the end of 2018, up from 25 million just a year ago.

As you would expect, if Pay TV viewers are dropping, then viewers of online services ought to be increasing. They are predicting the number of viewers of the major OTT services as follows for 2018:  YouTube – 192 M; Netflix – 147.5 M; Amazon – 88.7 M; Hulu – 55 M; HBO Now – 17.1 M and Sling TV – 6.8 M. eMarketer says that in 2018 that 52% of homes now watch both Pay TV and an online service.

We know that Netflix’s growth has slowed and they added only 670,000 net customers in the US in the second quarter of this year and only 4.5 million worldwide. It appears, however, that the other online services are all growing at a faster pace as people are diversifying to watch more than just Netflix.

eMarketer credits a lot of the exodus of Pay TV subscribers to the proliferation of original content available. In 2010 there were 216 original TV series produced. That was 113 from the broadcast networks, 74 from cable-only networks, 25 from premium movie channels and 4 from online providers like Netflix. In 2017 that number has grown to an astonishing 487 original series. That’s 153 from the broadcast networks, 175 from cable-only networks, 42 from premium movie channels and 117 from online providers. A large percentage of the 487 series are now available online to somebody willing to track them down. These figures also ignore the proliferation of other content available online such as movies, documentaries, comedy specials, etc.

The proliferation of content from multiple sources is making it harder to rely on just one source of content these days. Somebody with a basic cable subscription is missing out on the 159 series produced by the premium movie channels and the online providers. Somebody cutting the cord and only using Netflix would be missing out on even more content. Some of the content generated by the broadcast and cable networks is available for free online, with commercials from places like Hulu. If a cord cutter wants to have access to a lot of the available content they’ll have to subscribe to multiple services – perhaps Netflix plus something like Hulu or Sling TV.

The eMarketer survey didn’t ask about the affordability of traditional cable – a factor that is at the top of the list in other surveys that have studied cord cutting. This particular survey concentrated on what people are watching without delving into the issues that drive somebody to cut the cord.

I don’t know about my readers, but I’m a cord cutter and I’ve already reached the point of content saturation. I probably have fifty items on my Netflix watchlist, and it would take more than a year to watch it all, even if I never add anything new. I have a similar list on Amazon Prime and a smaller list on Hulu. I never sit down to watch content without more options than I know what to do with. I have the luxury these days of watching content that fits my mood and available time – a real luxury compared to even a decade ago.

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Regulation - What is it Good For?

Plummeting Franchise Fees

The City of Creve Coeur, Missouri recently filed a suit against Netflix and Hulu claiming that the companies should be paying the same local franchise fees as Charter Communication, which is the incumbent video provider in the community. The City claims that it is losing franchise tax revenues as people cut the cord and they want to tax the companies that are taking that business away from Charter. They argue that Netflix and Charter ride the same wires and rights-of-way to deliver content and both should be taxed the same.

My quick reaction is that the lawsuit will get little traction due to the numerous differences between Charter and Netflix. However, I’ve learned over the years that it’s hard to predict tax disputes and it’s certainly possible that a judge might agree that Netflix can be taxed. If the courts see this as a regulatory battle the case will likely get referred to the FCC, but there’s no telling what happens if it’s instead considered as a tax dispute.

Most cable franchise taxes around the country are levied against the amount of cable TV revenues sold in a community. The nature of franchise agreements varies across the country and there are some jurisdictions that also tax telephone and broadband services.

There some interesting differences between a cable provider like Charter and Netflix.

  • I’ve read a lot of franchise agreements and one of the most common characteristics of these agreements is that, while the assess the tax levy on cable revenues, the basis of the agreement is to grant access to public rights-of-way to allow a cable provider to hang wires or bury cable in the community. Charter owns a wired network in the City while a company like Netflix does not.
  • Franchise agreements almost always create an obligation for a cable provider to serve everywhere in the community, or at least to the parts of the community that have a certain level of home density. For instance, cable companies are often required to build wires to any parts of town that have at least 15 or 20 homes per linear mile. The same obligation can’t really be applied to Netflix – they can only sell to homes that have sufficient broadband to use their service.
  • There are often other requirements that come with a franchise. For instance, the franchise holder might be required to dedicate a channel for local government programming. Franchise holders are often required to provide fiber or bandwidth to the City. Netflix wouldn’t be able to meet any of these obligations.

I don’t know if the City ultimately wants Netflix and Hulu to sign a franchise agreement, but if they do the City might not like the result. Current regulations require that a City can’t demand concessions from one franchise holder that doesn’t apply to all franchise holders. I can picture a stripped-down franchise agreement for Netflix for which Charter would immediately demand to use if Netflix was excused from any obligations required of Charter.

The FCC does not want this issue handed to them because it opens the door to defining who is a cable company. The agency opened an investigation into this issue a few years ago and quietly let it drop, because it’s not a decision they want to make. The FCC is constrained on many issues related to cable by laws passed by Congress. I think the FCC decided early in the investigation that they did not want to tackle the sticky issues of declaring online programmers to be cable companies. Had the FCC done so then this suit might have good traction.

Even a few years ago at the early start of online content the FCC could see that the online content world would become messy. There are now companies like Sling TV and DirecTV Now which look a lot like a cable company in terms of programming. But there are far more online providers that don’t fit the mold. Is a company that only streams British comedy, or soccer, or mystery movies really a cable company? Is a web service that streams blogs a content provider? I think the FCC was right to let this issue quietly die. I’m sure the day will come when the FCC finally acts on the issue, but when they do it’s more likely that traditional cable companies will be freed from regulation instead of dragging OTT providers into regulation.

It’s hard to think any city can justify the legal expense of pursuing this to the end – even winning might not give them the results they want. Without congressional action the City would have to tackle each of the hundreds of online video content providers to somehow get them to also pay a tax. This feels a lot like tilting at windmills. However, many taxes we pay today started when one jurisdiction tackled the issue and others climbed aboard – so this is worth keeping an eye on.

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